The Glorious People’s Republic of China has imposed a $975 million fine on Qualcomm, citing the chipmakers anti-competitive practices.

The fine is the culmination of a 14-month probe into Qualcomm’s business practices. Qualcomm has agreed to pay the fine, and take steps to comply with a number of requests. Under the agreement, Qualcomm will have to reduce royalty rates on patents used in China.

This move may render domestic smartphone makers more competitive, as they could end up paying less for Qualcomm products. Qualcomm will also have to offer licenses to essential 3G/4G patents separately from other patents, which means it won’t be able to “bundle” them with various platforms and products.

However, at the same time cheaper Qualcomm chips for China’s aggressive handset makers do not sound like good news for MediaTek, Samsung, Intel and a number of other players. Qualcomm CEO Steve Mollenkopf told Reuters that the company is happy the investigation is over.

"It removes a significant source of uncertainly from our business and positions our licensing group to really participate in the full growth of the wireless market in China," said Mollenkopf.

While substantial, the $975 million fine is equivalent to about 8% of Qualcomm’s 2013 sales in China. The maximum fine could have been 10%, but Qualcomm got a break because it cooperated with regulators.

The Android smartphone space may be on the verge of becoming highly commoditised, following in the footsteps of the Android tablet market.

This is not a new phenomenon, as the market grew and evolved quickly, becoming oversaturated over the past two to three years – especially in the high-end. A number of big brands are already feeling the pinch, including Sony, and even mighty Samsung.

The new trend is bound to offer a lot of opportunities, along with pitfalls for established players, so let’s take a closer look at what’s going on, from silicon to retail.

Mature hardware and immature consumers

Let’s face it – smartphones are mature products and new models are bound to be gimmicky, with a lot less true innovation, and more marketing. Many consumers still fall for the hype, but even a lot of hardware enthusiasts are starting to scratch their heads and wonder whether frequent upgrades are worth it.

Flagship application processors are already too fast and pointless for many consumers, there is no point in using higher resolution screens, cameras are evolving, but still can’t match proper compact cameras in terms of sheer image quality, although they compensate by using clever software tricks, made possible by excess processing power.

Meanwhile, battery life isn’t getting any better, the amount of internal storage is growing at a painfully slow rate, and in a lot of scenarios upgrades simply don’t bring much to the table. The two-year upgrade cycle is still alive thanks to carriers, but without them smartphones could end up with a much longer lifecycle. The tablet market has already gone through this phase, and Q4 2014 sales dipped 12%. Carriers are also propping up big phone brands, but I’ll get to that later.

There is still room for improvement and innovation, but not at the current rate, especially not in the high-end. More processing power and bigger, higher resolution screens won’t solve the problem. However, while this is true of the high-end market, it does not apply to other market segments.

Rebranded vanilla Android phones

Almost a year ago, Motorola announced that the frugal Moto G was its best-selling phone of all time. In the meantime the Moto G was updated, but the company did not change the recipe – the new Moto G still has the same quad-core Cortex-A7 processor and a very similar spec.

The Moto G is not alone, as competition in this market segment is heating up. Last week we took a look at the BLU Vivo Air, which is a rebranded Gionee Elife S5.1 with a different SoC. The phone is also available in Europe, as the Kazam Tornado 348.

BLU is a Florida-based outfit, while Kazam is a new European phone brand, staffed by industry veterans who honed their skills at bigger mobile companies.

Alcatel is back from the dead, and the company’s value Android phones seem to be doing quite well. Wiko is another relatively new European brand, launched in France three years ago.

The company came to our attention following the launch of the Wiko Wax, a mid-range phone based on Nvidia’s ill-fated Tegra 4i. It’s still a decent phone with an exceptional price - €139 buys you a 4G device with a relatively powerful CPU/GPU combo that should wipe the floor with the Moto G and other Cortex-A7 or Cortex-A53 quad-cores.

Alternative Android flagships are getting better

Xiaomi, Meizu, Huawei, OnePlus and a few smaller brands already have a number of very competitive designs with flagship specs, at even more competitive pricing, and they’re coming to a shop near you – not in Shenzhen, but in Sheffield, Stuttgart and Seattle. However, major carriers still prefer to focus on big brands, shutting the door on newcomers. So, if you want an alternative Android flagship, you have to turn to retail.

You can grab a Meizu MX4 32GB in Germany for €349, or last year’s Xiaomi MI-3 64GB for €299 at Amazon.de. While you’re on Amazon, you can also check out Huawei’s Ascend P7, which goes for €249 or less, or maybe the OnePlus One 16GB for €329. All of these phones cost €50-€250 less than big brand Android flagships, not to mention iPhones, yet in most cases they ship with more storage and very competitive specs.

However, since a lot of people still buy phones on two-year contracts, they simply don’t have a choice and have to go with big brand devices. Buying off-contract is somewhat different, but when it comes to tech the average consumer is not nearly as informed as a Fudzilla reader, so big brands still do well.

What about innovation and quality?

It’s never been easier to get into the Android market, as off-the-shelf technology is already mature and there is a lot of manufacturing capacity in China. Even a $5 SoC is more than adequate for entry-level and mainstream Android devices, high-resolution IPS panels are abundant, along with other components.

Design and build quality remain a concern, but they don’t have to be poor. For example, Xiaomi and Meizu have staked their hopes on high-quality metal flagships, but even cheaper devices can offer good build quality. The 5.15mm Gionee Elife S5.1/BLU Vivo Air/Kazam Tornado 348 features two panes of Gorilla Glass 3 on the front and back, squeezed into a CNC-machined aluminium-magnesium unibody.

A lot of Chinese white-box outfits are trying to differentiate their phones with unorthodox designs and features. For example, they offer dozens of ruggedized devices with IP68 or IP67 certification. Oversized phablets are common too, along with handsets with huge batteries. For example brands like Gionee and BLU are selling 5-inch phones with 5000mAh batteries, with a reverse charge cable in the box.

Obviously, it’s not innovation on a grand scale and cannot compare to technologies and features developed by leading brands, but small brands can be very agile and enter new niches in a matter of weeks rather than months or years.

The traditional Android flagship is not dead

I am not suggesting traditional big-brand flagships are going to fade away, because they simply won't. They are starting to see more competition from ambitious companies like Xiaomi and Meizu, but they are not a serious threat, at least not yet.

However, commoditisation could turn the entry-level and mid-range markets on their head. Samsung’s recent woes weren’t caused by a sharp drop flagship sales, but by poor performance in China and emerging markets. While we tend to focus on flagships, big brands still generate a lot of revenue in other market segments, which is reinvested in R&D, marketing and used to create next-gen flagships.

That said, strong flagship smartphone sales are somewhat of an anomaly. Big carmakers don’t make most of their money on their most expensive products, and neither do chipmakers like Intel and AMD, or PC vendors.

Intel CFO Stacy Smith expects the PC to continue rebounding versus tablets in 2016 and says an Intel partner is being set up to be a major force in the Chinese smartphone SoC market.

In an interview with Barron’s, Smith also confirmed the chipmaker is working on custom chips for cloud vendors. He said Intel is “well into the semi-custom product” and will be in the custom server chip space within a year or so.

PC market is alive and kicking

Smith told Barron’s that Intel is operating on the assumption of a flat PC market, relatively strong in mature markets, and weak in emerging markets.

Smith added that the PC market is a “fascinating place” right now, as there is a lot of innovation both in high-end and low-end products. He described new Broadwell products as “phenomenal devices” and said upcoming Skylake products will offer all-day battery life and spectacular performance.

On the opposite side of the spectrum, Smith talked up Bay Trail products, which enabled the creation of sub-$250 notebooks with adequate performance.

Intel’s tablet strategy

Smith said Intel experienced a lot of growth in the tablet market last year, but mainly because it was starting from a very low volume.

“We started 2014 with zero share, we ended the year exceeding the 40 million-unit target we set,” said Smith.

Smith also questioned the dynamics of the tablet market. Recent market research suggests growth is slowing down rapidly and product maturity is one of the factors behind the slowdown.

“There’s not a huge difference between the capability that you get today versus a tablet that’s 18 months old — versus, I have a PC that’s four years old, heavy, relatively short battery life, relatively underperforming, with something that’s modern, so a lot of performance, a much-improved battery life, and touch-enabled screen, for example, that we’re seeing this share of wallet shift back toward PCs in 2014 relative to tablets,” Smith told Barron’s.

Smith said Intel is losing a lot of money in the tablet segment and now wants to make the tablet business profitable.

Chinese smartphone market ripens

Smith said Intel is still a relatively small player in the smartphone space, despite the fact that it has compelling architectures.

“I think Spreadtrum is being set up to be a key player in China. Yeah, I think that could be a meaningful market over time, and the Chinese market is the largest phone market on the planet,” said Smith.

Smith said Intel can work with a lot of different players and allow them to innovate on Intel’s architecture.

Two months ago Intel CEO Brian Krzanich said he expects the company’s new chip partners in China to drop ARM and migrate to x86 over the next few years.

Chinese authorities are limiting local access to Google services including Gmail.

Google services including the Gmail email client have crashed and the search engine says that it is not a problem it can fix.

The Chinese are not saying anything either but there has been am 85 per cent drop in Google traffic from China. This started on 26 December, and grew over the ensuing days. Today it shows connections hovering down on the zero mark.

Google's transparency report takes some space to explain the current situation in China, and it says there that Google Sites, in general, have been inaccessible for some 1904 days.

Google Search was killed off in the run up to the anniversary of Tiananmen Square since May.

YouTube, banned for 2106 days, and Picasa, 1991 days, are also unavailable.

Qualcomm is more cautious on future revenue growth. The outfit has been doing well lately with the moves into 4G and mobile, but it is starting to get concerned about China.

The outfit faces an antitrust probe in China, which makes it difficult to collect royalty payments from the device manufacturers.

Qualcomm is expected to grow its revenue between eight and ten percent annual over the next five years and its earning per share by even more. CEO Steve Mollenkopf said at the company's annual investor day that Qualcomm's issues in China were creating problems with its royalty business, known as QTL, which provides most of Qualcomm's revenue.

Qualcomm's overall revenue grew 6.5 percent in fiscal 2014, which was far below the growth rates of approximately 30 percent in previous recent years.

Mollenkopf said that his company needed to resolve its China crisis we think we'll continue to grow in that area.” Qualcomm is developing low-power chips for data centres, which is currently a market dominated by Intel.

Qualcomm’s fifth-generation LTE modem chip, with improved upload and download speeds, was being trailed by customers to be commercially available next year.

It seems that the Chinese have not heard of the IT superstition of never claiming that your computer system is the most secure in the world. Apple made that mistake, but it turned out that any security it had only worked if no-one could be bothered to hack it.

Now China claims it will soon have the world's most secure major computer network, making communications between Beijing and Shanghai impenetrable to hackers. In what amounts to a challenge to the US spooks and 12 year old hackers, they claim that a fibre-optic cable between the two cities will transmit quantum encryption keys that can completely secure government, financial and military information from eavesdroppers.

Prof Pan Jianwei, a quantum physicist at the University of Science and Technology of China (USTC) in Hefei, who is leading the project said that after the Edward Snowden affair that China learnt that it was always being hacked.

"Since most of the products we buy come from foreign companies, we wanted to accelerate our own programme," he added. "This is very urgent because classical encryption was not invented in China, so we want to develop our own technology."

The £60 million cable, which is being funded by the central government and has been supported by the Central Military Commission, will initially mostly be used for money transfers by ICBC, the world's largest bank.

Prof Pan said eventually all communications in China, down to storing photographs on cloud servers, could feature quantum encryption.

"Ten years ago it was not so easy to get sufficient funding to support theoretical research, but since 2006 and 2007 when the economy really went well, they have been putting more money into research and then it really sped up," he said.

China is reading a new operating system which should hit the shops by October.

China wants to help its domestic industry catch up with imported systems such as Microsoft's Windows and Google's mobile operating system Android and getting its own OS which is free of the backdoors of Imperialist western software is seen as the way forward.

The operating system would first appear on desktop devices and later extend to smartphone and other mobile devices.

The news was announced in the People's Post and Telecommunications News, an official trade paper run by the Ministry of Industry and Information Technology (MIIT).

The operating system will be supported by app stores, the newspaper reported.

Apparently, the goal is to replace Windows domestically within one to two years and mobile operating systems within three to five years.

This explains why in May, China banned government use of Windows 8, Microsoft's latest operating system, but not Windows 7.

In March last year, China said that Google had too much control over China's smartphone industry via its Android mobile operating system and has discriminated against some local firms.

Researchers from Harvard and the University of California San Diego released a report in Science in which they explain how to get past the Great Firewall of China.

Gary King and his team created dozens of shill accounts and posted hundreds of messages on China's most popular social networks to see what would be filtered. Then they worked out a way of gaining access to the software used to censor content, so it could reverse-engineer the system.

The group created its own social media website, purchased a URL, rented server space, contracted with one of the most popular software platforms in China used to create these sites, submitted, automatically reviewed, posted, and censored its own submissions.

As a result they had complete access to the software, documentation, help forums, and extensive consultation with support staff and could get recommendations on how to conduct censorship on our own site in compliance with government standards.

What surprised King was that it was OK to criticize the government in China, as long as you are not inciting others to do anything about it.

It looks like the country is more worried about uprisings, protests, and anything that could spur real-life action, not government criticism.

While China is autocratic, King says that it's a "responsive" autocracy, meaning the government is cool with people criticizing their local leaders. In fact, it actually serves the government well if they do so.

Basically if you use a word like “masses," "incident," "terror," "go on the streets," and "demonstration" you are going to be flagged by the censors.

But what is clever about the Chinese censorship system is that it encourages social networking sites to do the censoring for it.

China can maintain the illusion of not censoring posts if it's implemented on a slightly different basis by hundreds of companies throughout the country. At the same time, companies know that they have to censor content that incites people to action, allowing the Chinese government to keep people held down without the illusion that it's actually doing so.

Chinese hackers broke into the computer networks of a United States government agency that keeps the personal information of all federal employees.

According to the New York Times the attack happened in March. The hackers appeared to be targeting files on tens of thousands of employees who applied for top-secret security clearances. The attackers hit the databases of the Office of Personnel Management before federal authorities detected the threat and blocked them.

So far it is not clear if the hackers found anything useful, but if they did see the security clearances list they would also have found information on the applicants foreign contacts, previous jobs and personal information like past drug use. It is possible that the hack came after the United States charged five Chinese military officers, accusing them of hacking into American companies to steal trade secrets.

The US obsession with spying on everyone is about to cost its entertainment and software industry. The Chinese have reasoned that since the US government are going to be a bunch of arseholes and spy on it anyway, it might as well allow its industry to run on the fruits of piracy and cyber-crime.

Cooperation between the United States and China on fighting cybercrime has ground to a halt since the recent US indictment of Chinese military officials on hacking charges. The country also appears to have unleashed more hacking attacks against the US. US and Chinese officials had been working together to combat certain types of online crime, including money laundering, child pornography and drug trafficking. Now that has all stopped.

It is expected that China will be making further reprisals against US companies. Chinese state media has slammed Google, Apple, Yahoo, Cisco, Microsoft and Facebook for spying and stealing secrets.